Royal Mail shares soar in sparkling stock market debut

That increased the value of Royal Mail to as much as 4.5 billion pounds (USD 7.2 billion, 5.3 billion euros).

AFP| Updated: Oct 11, 2013, 18:30 PM IST

London: Shares in Britain's Royal Mail surged by more than a third on Tuesday in a impressive debut on the London stock market following its controversial part-privatisation.

Shares soared 36 percent to 450 pence at the start of conditional deals by institutional investors on the London Stock Exchange today, ahead of full trading next week.

That increased the value of Royal Mail to as much as 4.5 billion pounds (USD 7.2 billion, 5.3 billion euros).

Business Secretary Vince Cable, a Liberal Democrat, said that the sell-off was a "very good deal" for Royal Mail workers, for Britain and for the government.

The news sparked fresh accusations from trade unions that the business was sold off too cheaply by Britain's Conservative-Liberal Democrat coalition government.

The government had set the offer price at 330 pence per share yesterday. That was at the top of its expected range but gave the business a much lower valuation of 3.3 billion pounds.

However, Billy Hayes, general secretary of the Communication Workers Union, described the privatisation as "a tragedy" and said it would make "not one scintilla of difference" to Royal Mail employees' intention to vote for strike action next week.

Today's surge means that 690,000 ordinary investors who have each bought around 750 pounds-worth of stock, are currently sitting on a paper profit of more than 270 pounds each.

Britain's privatisation of a 52.2-percent stake in the Royal Mail has also raised an initial 1.72 billion pounds for the Treasury.

One third of the stake was allocated to retail investors - excluding shares being given to employees - while the remainder was sold to institutional investors, such as pension funds, insurers and hedge funds.

Under the deal, Royal Mail employees received 10 percent of the shares free of charge.

British Prime Minister David Cameron's government had last month launched plans to sell off more than half of the state-run postal service.

The IPO forms part of the coalition's broader strategy to slash the budget deficit, but has sparked anger from trade unions who argue that privatisation will provide a worse service for customers.

The government has long argued that partial privatisation would allow Royal Mail the freedom to raise capital, continue modernising and meet booming demand for on line shopping that generates parcel traffic.